Image: Wynn Resorts.

The casino industry has gone through a paradigm shift during the past couple of years, as the once-booming Asian gaming mecca of Macau has reversed its explosive growth and seen massive declines in revenue for more than a year now. That has had a huge impact on Wynn Resorts (NASDAQ:WYNN), which already has a substantial presence in Macau, and is also looking at opening a new resort there that will increase its overall reliance on the health of the former Portuguese colony's future prospects.

In its third-quarter financial report tomorrow, Wynn Resorts will see dramatic drops in its sales and net income, but investors will be looking for signs of a potential bottoming-out process and rebound over the longer run. Let's take an early look at what to expect from Wynn Resorts, and whether Macau's prospects are finally starting to look brighter.

The deck is stacked against Wynn
The current consensus estimates among those following Wynn Resorts show just how huge an impact Macau's woes will have on the overall company. Investors are bracing for a revenue decline of nearly 25%, to $1.03 billion, and earnings are seen plunging to $0.87 per share, down more than $1.00 per share from the casino giant's year-earlier results. Even worse, Wynn has put together a streak of three quarters in a row in which it has failed to meet expectations among investors, suggesting even more potential downside for the resort company.

Indeed, investors have already marked down their views on what Wynn is likely to tell them this quarter. In recent months, they've cut their estimates for the third and fourth quarters by more than $0.10 per share, and they've become less optimistic about full-year 2016 projections, as well, reducing them by more than 10%. The stock has continued its near freefall, losing more than a third of its value since mid-July, even though it has bounced more than 40% from its lowest levels just a couple of weeks ago.

Wynn's second-quarter results in late July didn't do much to calm investors' nerves about the casino company's future prospects. Revenue fell 26%, and net income plummeted by nearly three-quarters. Even though Wynn's Macau-based revenue didn't fall quite as much as the overall market throughout the Asian gaming capital, a drop of more than 40% in Wynn Macau's EBITDA marked the worst results for the resort in nearly five years. Weakness in Asia also affected Wynn's Las Vegas gambling revenue.

One recent positive for Wynn could point the way toward an eventual solution to its Macau woes. In Las Vegas, Wynn's non-casino revenue rose more than 5% year over year in the second quarter, showing the power of mass-market appeal beyond the gaming tables. Because Macau's slowdown has largely resulted from problems linked to VIP junkets aimed at high-end gamblers, companies like Wynn and Las Vegas Sands (NYSE:LVS) have redoubled their efforts to appeal to those who have little or no interest in gambling.

Las Vegas Sands, in particular, has used its experience in the convention and exhibition business to try to draw a broader audience to its resort properties, and in Sands' projects, features like shopping malls and performance venues have become increasingly important to the economic success of the entire venture. Investors should expect Wynn to follow suit with similar moves to attract a mass-market clientele, especially if Chinese crackdowns on VIPs continue.

The biggest question facing Wynn is whether conditions in Macau will improve in time for the opening of its Wynn Palace resort on the Cotai Strip. Construction efforts have continued despite concerns about whether key items like table-game licenses will be made available, and comments earlier this month from government officials suggested that they are looking for ways to support the Macau economy.

Despite the lack of specifics in that statement, Wynn, Las Vegas Sands, and other casino stocks with exposure to Macau soared in response. Still, investors will need to see actual follow-through on those comments in order for them to carry weight in the long run.

In the Wynn Resorts earnings report, investors will need to look beyond the alarming headline declines in key numbers. Instead, focus on comments from CEO Steve Wynn and other company executives regarding the company's future prospects and outlook on Macau. With the stock down so much, just about any positive news at all could give value-seeking investors the catalyst they need to get back into Wynn shares.